Taking Stock of the Solikamsk Magnesium Plant (SMM)
Resurgence of Minoritarians: Examination of the Incident Regarding the Seizure of Solikam Shares
In the midst of a turbulent shift, investors holding shares of the Solikamsk Magnesium Plant (SMM) find themselves in the thick of things. On May 5th, a ruling by the 17th Arbitration Appeal Court in Perm decided that these investors should maintain their ownership, rejecting the idea of seizing shares as part of SMM's re-privatization.
A saga dating back to August 2022 has unfolded for minority shareholders, stemming from the Prosecutor General's Office's initial demand for the seizure of shares from small shareholders. In October 2021, the court already ruled in favor of the Prosecutor General's Office, seeking the seizure of 89.5% of shares from major shareholders, and later arresting SMM's property. The move effectively returned state control over the strategic enterprise, serving as the largest supplier of rare earth metals and magnesium products crucial for defense, machinery, and nuclear energy industries. Eventually, these confiscated shares ended up with Rosatom.
In March 2024, the case extended to minority shareholders, involving veterans who took part in the 90s privatization, as well as investors who acquired shares on the Moscow Exchange. This action directly contravenes Russian law, prompting the Moscow Exchange and the Central Bank to throw their support behind the small shareholders. The Prosecutor's Office and Rosatom subsequently proposed a compromise agreement, assuring shareholders of the legality of their demands and requesting their acknowledgment and renunciation of any future appeals. Some minority shareholders agreed to these terms, but the appeal court later partially overturned the Perm Arbitration Court's decision.
The Solikamsk Magnesium Plant incident has set a precedent, though its full implications are yet unclear.
Trading Treasures or Trapped Assets?
In October 2022, the Moscow Exchange halted settlements for SMM shares, leading to a stop in trading. However, delisting from the exchange did not follow suit. Holders of minority shares bought shares in a private company producing specialized products, with SMM now under 89.5% control of the state through Rosatom. The future relationship with these minority shareholders remains uncertain. Possible sale options exist, with Anastasia Ryabova, senior lawyer at ALX Partners, suggesting that trading may resume once the court decision is enforced.
Alexandra Ignatyeva, lawyer at NSP Law Firm, notes that the plant's shares are under arrest and may take a significant amount of time to be released following legal proceedings. In the interim, trade is impossible. Additionally, the volume of shares in circulation might shrink as some minority shareholders agree to deals with the Prosecutor General's Office and Rosatom for compensation.
Yekaterina Tokareva, partner at Pen & Paper Law Firm, posits that minority shareholders could find willing buyers to purchase securities at their desired price and offer them to the majority shareholder of SMM—the state. If the state refuses, the shares can be sold to a third party. However, Tokareva cautions that potential buyers might be in short supply, potentially leading to a decrease in the real purchase price of shares.
Dividend Dilemma
Despite ongoing investigations, SMM still doled out dividends. However, minority shareholders missed out due to the court's block on payments at the request of Rosimushchestvo. Minority shareholders were entitled to more than 185 million rubles, with payments expected to reach 4406 rubles per share (at stoppage, SMM shares were worth 7400 rubles).
Now, minority shareholders who acquired shares through organized trades and those unaffected by seizure can claim payments. "Affected shareholders who have not lost their shares should have the ability to exercise all rights associated with them, including the right to receive dividends," says Sergei Vodolagin, managing partner of Westside Law Firm.
Funds for dividends should be reserved and distributed after the appellate court decision takes effect and the enforcement measures are lifted, according to Anastasia Ryabova from ALX Partners. If SMM fails to provide dividends, minority shareholders can litigate and demand payment, suggests Fedor Zakabunya, partner at Asterisk Law Firm.
Other Investors on the Line
A large number of minority shareholders of SMM are former employees who bought shares during the privatization process. For these holders, the first instance court's decision, in essence, the seizure of their assets, remains valid.
Alexandra Ignatyeva of NSP Law Firm suggests that the decision also holds for shareholders privatized in the 90s, possibly due to another case where 90% of shares were taken from majority shareholders, and the privatization was deemed flawed.
Minority shareholders reaching deals with the General Prosecutor's Office and Rosatom during proceedings are likely to receive compensation under these deals, according to Ignatyeva. Payments are scheduled to begin once the court decision takes legal effect, following its publication.
Inquiries forwarded to the General Prosecutor's Office were met with a promise to provide more comprehensive comments after the full text of the court decision is published. Rosatom expressed a commitment to fulfilling its obligations towards conscientious buyers of shares in any scenario.
A Fickle Future
With nationalization as a new reality, the future for minority investors in the Solikamsk Magnesium Plant retains an element of uncertainty. Key points to consider are:
- Impact of Nationalization: State control over the plant typically diminishes non-state stakeholders' influence and possible returns, potentially leading to reduced investment and operational autonomy.
- Re-Privatization Possibilities: The likelihood of re-privatization is minimal in the absence of significant policy or economic shifts within the Russian government. A reversal of nationalization at present appears unlikely.
- Market and Regulatory Landscape: Ongoing geopolitical conflicts and the domestic legal environment in Russia may deter foreign investment and complicate any potential re-privatization efforts, further limiting opportunities for minority investors.
- Strategic Importance: Given the plant's importance to Russia's defense and industrial sectors, any future decisions concerning its ownership are likely to prioritize state interests over those of minority investors.
In essence, without substantial changes in Russian policy or economic conditions, the prospects for minority investors in the Solikamsk Magnesium Plant remain challenging.
- Despite the ongoing legal battles, some minority shareholders of the Solikamsk Magnesium Plant (SMM) are exploring investment opportunities, such as seeking potential buyers for their shares or engaging in debates about re-privatization.
- The future of finance for minority shareholders of SMM is uncertain, as their ability to receive dividends is currently blocked and dependent on the court's decision, while their shares' value remains under arrest and potentially subject to trade restrictions due to nationalization.
